Google Tests TV Search Service
The Wall Street Journal

Google Inc. is testing a new television-programming search service with Dish Network Corp., according to people familiar with the matter, the latest development in a fast-moving race to combine Internet content with conventional TV.

The service, which runs on TV set-top boxes containing Google software, allows users to find shows on the satellite-TV service as well as video from Web sites like Google's YouTube, according to these people. It also lets users to personalize a lineup of shows, these people said.

With the test, Google moves deeper into a crowded field of companies, large and small, that have been trying for years to marry the Web and TV and their business models—from rivals Microsoft Corp. and Apple Inc. to the manufacturers of televisions and set-top boxes.



Just last week, TiVo Inc. announced new digital video recorders that blend broadcast and online content.

Google's test, which began last year, is limited to a very small number of the company's employees and their families and could be discontinued at any time, said the people familiar with the matter.

Viewers in the Google test, these people said, can search by typing queries, using a keyboard rather than a remote control. Google hopes to connect the service with its nascent TV ad-brokering business, allowing it to target ads to individual households based on search and viewing data.

A Google spokeswoman said the company doesn't comment on rumor or speculation.

A spokeswoman for Dish Network, which has roughly 14 million subscribers, declined to comment.

Previous efforts to access Internet programming on TV sets have failed to catch on, partly because they required consumers to purchase extra hardware. By working directly with an operator like Dish and its hardware, Google could avoid the such issues. Unlike earlier efforts, Google's service isn't just about accessing Web content. It is also a search service that is integrated with the operator's programming.

For Google, which dominates Web search and the advertising revenue generated by it, the test represents another effort to extend its technology for delivering targeted ads into new fields, as its search business slows down.

The company is already playing a major role in the market for smart phones and mobile ads, for example, using an operating system called Android that is gaining popularity and supports a range of Google services.

Google appears to be pursuing a strategy to deliver ads across many Intenet-enabled devices from many Web sites.

The company hasd begun to target the market with a nascent ad-brokering business called Google TV. On the content side, its YouTube site has struck a variety of syndication deals with TV makers and console companies.

In addition to the test with Dish, Google has been talking to a range of other television-service providers and hardware makers, prodding them to use its Android-based technologies to offer a broader range of programming, a more personal experience and ads.

Google Chief Executive Eric Schmidt said in a January interview that it "makes sense that people would use Android as an operating system for set-top boxes and buddy boxes and TVs" and added "all of those ideas have been proposed by our partners." Mr. Schmidt said Google isn't in the business of making the hardware itself, but rather is concerned with search and Google SEO.

But playing any major role in TV won't be easy. Despite moves to create more open standards around set-top boxes, most cable and satellite companies closely guard their set-top box software and their overall programming experience.

While many are scrambling to find ways to take advantage of programming delivered using the Internet, hardware companies and operators have tended to custom-tailor such offerings rather than offer access to all Web sites. They may actively resist the notion of opening their services to Google.

To make TV ads more targeted, cable companies have banded together to form Canoe Ventures, a consortium that has agreed to roll out ads targeted at particular demographics– and eventually households—on a national scale. The project has been delayed due to technology issues.

Google's own TV ad business is a cautionary tale. Google has sold ads on TV since 2007, opening the program up to all advertisers in 2008. Currently advertisers can buy TV ads online for nearly 100 national cable networks, according to the company, and track how the ads perform.

But the program, which relies on an online auction similar to its search business, hasn't generated any material revenue for the company.

Google has attributed the reception to the fact that many set-top boxes or TVs aren't capable of delivering the two-way feedback it uses to tailor its algorithms. That problem has eased somewhat lately, as a large number of new TVs now come with Internet connections.

People familiar with the matter say Google plans to pursue a similar strategy on TVs as it did with mobile phones, using Android and other software technology to help open TVs and set-top boxes to new content and new ads.

Richard Doherty, director of technology consulting firm Envisioneering Group, says Google has a good shot of luring users due to technology advantages. For instance, he says set-top boxes running Android or other bits of software Google developed, like Chrome, could be updated instantly, while operators take much longer to refresh their offerings.

"No one Net entity has the deep resources to give so many viewers free features which could enrich Google far beyond the operators' own dreams," he said.

FCC Rolls out Plan to bring High-Speed Internet to all Americans

FCC to propose revamping Universal Service Fund

WASHINGTON (AP) - Federal regulators trying to bring high-speed Internet connections to all Americans will propose tapping the government program that now subsidizes telephone service in poor and rural areas.

The Federal Communications Commission will include a proposal to revamp the Universal Service Fund as part of a national broadband plan due to Congress on March 17. Although the proposal itself has been expected for months, Friday's announcement offered the first solid details.

The FCC said it envisions transforming the Universal Service program over the next decade to pay for high-speed Internet access instead of the traditional voice services that it currently finances. The proposal would create a Connect America fund inside the Universal Service program to subsidize broadband, and a Mobility Fund to expand the reach of so-called 3G, or third-generation, wireless networks.

"It's time to migrate this 20th-century program," said Blair Levin, the FCC official overseeing the broadband plan, which was mandated by last year's stimulus bill. "We need to move the current system from the traditional networks to the new networks."

The Universal Service Fund was established to ensure that all Americans have access to a basic telephone line. Today, the program subsidizes phone service for the poor, funds Internet access in schools and libraries and pays for high-speed connections for rural health clinics. But its biggest function is to bring telephone service to remote, sparsely populated corners of the country, where it is uneconomical for the private companies to build networks.

Funding for the $8-billion-a-year program comes from a surcharge that businesses and consumers pay on their long-distance bills. That revenue base is shrinking, placing the Universal Service Fund under mounting pressure even as the FCC seeks to use it to subsidize broadband.

The agency's plan will lay out several options to pay for the proposals it outlined Friday, including one that would require no additional money from Congress and one that would accelerate the construction of broadband networks if Congress approves a one-time injection of $9 billion.

Either way, Levin stressed, the proposal would not increase the annual size of the Universal Service Fund, but rather would take money from subsidies now used for voice services.

The FCC would also seek to save money by subsidizing no more than one broadband provider in an areas. Some critics of the program have complained that wireless companies now overlay landline systems with new networks considered duplicative.

Levin said Connect America would not favor one technology over another, be it cable, DSL or wireless.

The FCC proposal also envisions revamping the multibillion-dollar "intercarrier compensation" system, the Byzantine menu of charges that telecom carriers pay to access each other's networks and connect calls. Any changes to the Universal Service Fund would also require changes to intercarrier compensation because rural phone companies tend to rely heavily on both funding sources.

The FCC's latest proposals will be part of a sweeping national roadmap for bringing universal, affordable broadband connections to all Americans.

Although the plan is due on March 17, the agency has already begun releasing details, including a proposal to make more wireless spectrum available for mobile broadband connections by letting television broadcasters and others voluntarily cede some airwaves.

Some of the proposals will likely require congressional action, while others might be up to the FCC to implement.

Oscar Advertisers Hope to Build Buzz on Facebook, Twitter

USA Today

The Oscar for the best place to chat about the Academy Awards goes to: social media.

For the first time, social media are being embraced both by the Academy of Motion Picture Arts and Sciences and Oscar show sponsors and others looking for a way to cash in on Oscar buzz.

Several of Sunday night's Oscars advertisers have added strong social-media components to their efforts. A $1.5 million TV ad, ABC's going rate this year, is just a start. The Oscar buy is also about leveraging the investment on Facebook and Twitter.

"It's no longer smart just to buy on the Academy Awards," says consultant Charlene Li. "You have to tie into social media so that people talk about you."

But the trick to making the package work, warns Debbie Weil, author of The Corporate Blogging Book, is to focus social-media efforts on the Oscars — not on your brand. "Don't make it about your company. Folks only care about who will win best actor or best actress."

Among this year's Oscar social-media tricks:

•Be app-y. The Oscars event is getting its own iPhone app. Users can access a nominees list in all 24 categories and trailers for the 10 best picture nominees. They can make predictions to share via Facebook and Twitter. "We want to connect with movie lovers wherever they are," says Janet Weiss, the academy's director of marketing.

•Leak ads. J.C. Penney will "leak" all seven of its Oscar ads via its Facebook page before the ads air during the show, says Nick Bomersbach, vice president of digital marketing. "The commercials are fan-based, and people like to comment on them."

•Dish the dresses. Samsung is sponsoring ABC.com's Oscar "red carpet," which will have live steaming of celebs arriving. A Facebook chat function will act as "a virtual online water cooler," says Peggy Ang, vice president of marketing.

•Hype news. Because of Academy Awards rules, sponsor Hyundai could not have its regular ad voice, best actor nominee Jeff Bridges, in its Oscar ads. So Hyundai is explaining on Facebook it rejiggered all seven ads with famous substitutes, says marketing chief Joel Ewanick.

•Go goofy. Advertiser Cottonelle toilet paper is nudging Oscar watchers to vote and chat online about whether they install their rolls "under or over," says John Stanwood, senior brand manager.

•Act snarky. Oscar advertisers might learn something from the bar at hotel Casa del Mar in Santa Monica, Calif. It will have several side-by-side flat screens — one with the Oscar show, the companion with a live Twitter feed inviting guests to tweet comments. Guests who make the funniest or most biting tweets will get free drinks.

Google to Buy Photo-Editing Site Picnik

BBC News

Internet search giant Google has bought online photo-editing site Picnik - its third deal in three weeks.

The firm did not disclose the cost of buying Picnik - a five-year-old start-up based in Seattle.

The 20-strong team will start working on Picasa, Google's online photo sharing service.

In an eventful period since September, Google has bought eight companies, introduced a social network named Buzz and threatened to pull out of China.

Last month, Google bought social search engine Aardvark and mobile e-mail service reMail.

It also said it would become a network provider, offering super-fast broadband to thousands of US homes.

In October, Google chief executive Eric Schmidt said the company would resume its historic pace of acquiring one small company a month on average, with larger deals happening every year or two.

Google said on 12 January that hackers had tried to infiltrate its software coding and the e-mail accounts of Chinese human rights activists, in a "highly sophisticated" attack.

The California-based company, which launched in China in 2006, said it would quit the country unless the government relaxed censorship.

China has denied being behind the attacks.

It also launched Google Buzz, a social network that is part of its e-mail, but was heavily criticised for not offering enough privacy protections.

Microsoft to Make Web-Based Programs a Billion-Dollar Business, Elop Says‏
Bloomberg

Microsoft Aims for $1 Billion in Web-Program Sales

 

Microsoft Corp.’s business-software unit expects to get at least $1 billion from Web versions of its Office and e-mail programs in the next three to five years, said Stephen Elop, head of the division.

Over that period, Microsoft predicts about half its customers for e-mail and collaboration software will switch to so-called cloud versions of the programs, which are stored and run from Microsoft’s server farms.

“Three years, five years, is it a billion-dollar business? I’m quite certain it will be,” Elop said in an interview on Bloomberg Television. “Because so much of what we’re doing is focused on this particular area, we’re seeing very large customers making large commitments in this direction. You’ll see it grow rapidly.”

The rising revenue will mean Microsoft can increase profit at the unit, Microsoft’s largest, even as analysts predict margins will narrow, Elop said. The company is readying its first Web-based versions of word-processing and spreadsheet software to match Google Inc., which is trying to steal Microsoft’s corporate customers and win over consumers.

Redmond, Washington-based Microsoft is also pushing cloud versions of its Exchange e-mail program and SharePoint, which allows employees to work together on projects and set up corporate Web sites.

Microsoft wants to use that software to lure users away from International Business Machines Corp. More than half of customers for these Microsoft programs are switching from IBM’s Lotus, Novell Inc.’s GroupWise and other competitors, said Microsoft Vice President Ron Markezich in an interview this week.

Microsoft rose 7 cents to $28.67 at 4 p.m. New York time on the Nasdaq Stock Market. After gaining 57 percent last year, the shares have lost 5.9 percent in 2010.

Google May Spend `Hundreds of Millions' on Its Broadband Internet Project‏
Bloomberg

Google Inc. said it may spend as much as “hundreds of millions” of dollars on an experimental broadband service that offers Internet speeds 100 times faster than current networks.

The cost of the test project, announced this month, isn’t known and will depend on demographics, the lay of the land and the number of households that use it, said Richard Whitt, Google’s Washington counsel on telecommunications and media issues. The company hasn’t determined the location or size of the network, which could serve 50,000 to 500,000 customers.

Google, after urging the Federal Communications Commission to expand broadband access, is developing the network to show the potential of high-speed Internet service. It also wants to ensure that networks are open to different software and technologies, rather than the ones picked by service providers.

“This is not a small thing,” Whitt said in an interview. “We’re trying to advance the ball on open networks. We’re hopeful this is one way to do that.”

Google, based in Mountain View, California, plans to build a fiber-optic network with speeds of 1 gigabit per second, or about 20 times faster than some of the fastest connections offered by Verizon Communications Inc. The cheapest connections run at speeds of 1 megabit or less.

Google climbed 37 cents to $526.80 at 4 p.m. New York time. The shares have fallen 15 percent this year.

‘Substantial Amount’

The investment shows that Google is serious about promoting broadband in the U.S., said Scott Kessler, an equity analyst at Standard & Poor’s in New York. He recommends buying Google’s stock, which he doesn’t own himself.

“That is absolutely a pretty substantial amount of money,” Kessler said. “Clearly, the company is pursuing this experiment in a pretty open-minded -- and I would argue pretty noteworthy -- way.”

The company plans to build the fiber-optic lines directly to consumers’ homes, much like Verizon’s $23 billion fiber network. Google’s costs could depend on whether the fiber-optic lines are strung on wires or put in the ground.

“It’s an open test bed,” Whitt said. “We will be providing regular reports back to the FCC and others interested in it. So we’re hoping that the learnings that we can generate from the engineering side and on the business model side can be useful.”

Cost Estimate

Ben Schachter, an analyst at San Francisco-based Broadpoint AmTech Inc., had estimated the cost of the network at $3,000 to $8,000 per home, with a total potential cost of $60 million to $1.6 billion. The midpoint of that projection is about $500 million, based on an estimated 20,000 to 200,000 homes, he said.

Google has asked for responses from communities that want to be part of its broadband effort by March 26. It plans to announce which areas have been chosen later this year.

Google is focused on the test project and isn’t drawing up plans for a nationwide broadband service, said Minnie Ingersoll, a product manager at Google.

“We are not planning to do a national rollout,” Ingersoll said. “There’s plenty of room for multiple companies to innovate in this space. We’re encouraging innovation in all forms.”

Google's Angels Tweet and Dine on Tofu Wraps as They Bankroll 200 Startups
Bloomberg News

During the holidays last year, Aydin Senkut [Photo Right] and Elad Gil gathered 50 of their friends at a health- food restaurant in Palo Alto, California. Over turkey burgers and tofu wraps, they talked about technology trends and how to get rich. Or, more precisely, how to get richer.

Senkut, Gil and their dining circle are alumni of Google Inc. Since going public six years ago, Mountain View, California-based Google has generated more than $170 billion for its employees and investors. Many of the millionaires the company has produced are active angel investors, attempting to add another zero to their bank accounts and another company to their list of accomplishments, Bloomberg BusinessWeek reports in the March 8 issue. “I feel like we have such a strong network, it’s almost like we’ve recreated Google outside of the Google walls,” says Andrea Zurek, a 39-year-old backer of 26 startups and, until 2007, regional sales manager at Google.

More than 40 ex-Googlers have invested in about 200 fledgling companies since 2005, according to the research firm YouNoodle Inc. and reporting by Bloomberg BusinessWeek. At least a half-dozen current Google executives, including Chief Executive Officer Eric Schmidt and co-founders Larry Page and Sergey Brin, are also financing young companies. YouNoodle defines people as Google angels if they’re investing their own money, investing out of a firm that uses only their money, or investing out of a firm in which a majority of partners are ex- Googlers.

‘Very Risky Deals’

Numerous angel-watchers say the Google group has more in common than just pedigree. The alumni are getting into “very risky deals that can be extremely rewarding,” says Jeff Clavier, a venture capitalist who founded Palo Alto-based SoftTech VC in 2004. “They have been very active as a group over the past two to three years.”

Companies backed by Googlers include Twitter Inc., Tesla Motors Inc., and gamemaker Tapulous Inc. “As Google matures, its alums are continuing to have a huge impact on Silicon Valley and the tech industry,” says Ron Conway, one of the Valley’s most active angel investors, who has backed 190 companies, including Google, Facebook Inc. and Twitter.

One reason for the Google angels’ success, say entrepreneurs, is that they have more to offer startups than just money. Bart Decrem, a 42-year-old Stanford University law grad, says he turned to the Google network when he was starting Palo Alto-based Tapulous in 2008. The company’s Tap Tap Revenge game requires players to tap on-screen balls to the beat of a song -- not exactly a sure thing of an idea.

Tap Tap

Decrem says he thought the game might become a substantial business by selling it on Apple Inc.’s iPhone. He says he raised $500,000 from a dozen angels, including Senkut and Zurek, who advised on strategy, connected the company with new partners in Asia, and helped it explore platforms for mobile phones that use Google’s Android software. Today, Tap Tap games have been downloaded more than 25 million times and Tapulous is profitable, says Decrem, without providing specifics about the company’s finances.

Google’s angels dabble in a wide variety of businesses. Zurek says she has money in a premium vodka maker and a South Korean frozen yogurt emporium. Yet the angels tend to concentrate their cash in what they know -- search technology, mobile computing and the consumer Internet. Twitter, backed by former Google executive Chris Sacca, is pioneering a new field of real-time communications. The online personal-finance service Mint.com, with money from Senkut, was bought by Intuit Inc. last year for $170 million. Search provider Powerset, backed by Senkut, was acquired by Microsoft Corp. in 2008, and its technology became a part of the Bing search engine, according to a post on a Microsoft blog.

Lamborghini

Senkut, a 40-year-old native of Turkey, has made investments of between $25,000 and $150,000 in 65 startups, by YouNoodle’s reckoning. Senkut joined the company in 1999 as a product manager. He left in 2005 and promptly took his mother to Paris for her 60th birthday -- and treated himself to a Lamborghini.

With that out of his system, he set about becoming a full- time angel. Eleven of the companies he has invested in have been acquired by Google, AT&T Inc. and Microsoft, according to his Web site.

Senkut also organizes two regular networking events for fellow alums, one for angels and entrepreneurs, and another for all ex-employees, at spots such as the Calafia Café in Palo Alto, owned by Google’s first in-house chef.

Twitter

Senkut is raising money for his firm, Felicis Ventures LLC, according to two angel investors, and declined to comment on his investments for this story. (Securities laws prevent the public solicitation of funds.) In an interview last October, after he had sold seven of his companies, Senkut said his investments had produced double-digit annualized returns and that he was being pitched new business ideas several times a day.

If Senkut is the established star among the Google angels, Chris Sacca is the up-and-comer. The 34-year-old Georgetown University law grad joined Google in 2003 and left in 2007. Of the 31 startups he says he’s backed, his biggest hit is Twitter, in which he invested $50,000 just as it was getting started in 2007. Sean Garrett, a Twitter spokesman, declined to comment on the company’s finances.

Working out of a 3,000-square-foot home in Truckee, California, a ski town near Lake Tahoe, Sacca hikes and snowshoes most mornings before breakfast and commutes to San Francisco for three days every two weeks. It’s an unconventional way to supervise investments -- Sacca has an unconventional approach to investing, period.

‘No-Brainer’

One Friday night in December 2008, he posted a message on Twitter asking if any startups were working late.

“We tweeted back, ‘We’re FanBridge and we work hard every Friday night,’” says Spencer Richardson, its 25-year-old co- founder. New York-based FanBridge makes software that helps musicians manage marketing and relationships with their fans.

A few weeks later, Sacca flew to New York and met with the company’s founders. “They had day jobs and built this site that had 20 million users, adding 100,000 users a day,” says Sacca. “It was a no-brainer.”

Sacca invested $50,000 and pulled in several hundred thousand dollars from other angels. Last year, FanBridge’s founders say they considered offering their products to authors, comedians and other artists; Sacca advised them to stay focused on the music industry. Today, FanBridge is profitable and used by 55 million music fans, according to the company. “The feedback from him was, ‘Start by being the best at something, then branch out,’” says Richardson.

Breakout Companies

The Google angels may have several more breakout companies developing in their portfolios. Sacca has invested in San Francisco-based Lookout, a developer of security software for mobile phones. According to YouNoodle, several ex-Googlers and current Vice President Marissa Mayer are behind San Francisco- based Square Inc., which aims to displace credit-card swiping machines with a cheaper payment system that works through smartphones. And current Google engineer Joshua Schachter helped finance Foursquare, a New York-based mobile-phone service that lets friends share tips on local hotspots and is being used more than a million times a week, according to YouNoodle.

“There is an ecosystem for capital in the Valley, and Google is a part of it,” says Schachter.

Paul Graham, who co-founded the Mountain View-based startup incubator Y Combinator, says the tech industry has just begun to appreciate that Google’s wealthy ex-employees may have not just a single innovative second act, but potentially hundreds of them. “When people write the history of Silicon Valley 20 years from now,” says Graham, “the true impact of Google could come more from all the things that Google people go on to do after they leave Google.”

Yahoo Gets Back With the In Crowd Through Twitter Deal

Computer World

In battle to regain lost momentum, Yahoo opens its sites to Twitter users

Yahoo Inc.'s deal with microblogging phenom Twitter Inc., announced yesterday, could prove timely for an Internet pioneer looking to regain lost momentum and join the social networking glitterati.

"This is a company struggling for relevance," said Rob Enderle, principal analyst at Enderle Group. "Social networking, rather than search, was closer to Yahoo's initial strength, and they lost their way by going after Google. This takes them back to their roots, and typically that is a good thing. This does give Yahoo some much needed visibility."

Yahoo and Twitter said the deal calls for enabling Yahoo's search engine to access real-time Twitter tweets in its search results. The agreement will also let Twitter feeds be accessed on various Yahoo properties, including its home page and its Yahoo Mail and Yahoo Sports pages. And Twitter users will be able to update their status from Yahoo sites, the companies said.

Last October, Twitter signed similar deals to integrate tweets into Google and Microsoft Bing search results.

Analysts note that the Yahoo-Twitter deal goes a step or two further by enabling users to access their Twitter feeds and to make status changes from Yahoo sites.

"The Yahoo deal is more extensive than the deals Google and [Microsoft] made with Twitter, and I think it demonstrates a new assertiveness on the part of Yahoo," said Augie Ray, an analyst at Forrester Research Inc. "The new Twitter-Yahoo deal has the potential to position Yahoo in the intersection of the search, content and social worlds. Whether this allows Yahoo to grab more buzz and build some momentum will depend upon the speed and effectiveness in rolling out the new Twitter features."

Ezra Gottheil, an analyst at Technology Business Research, said the move should help struggling Yahoo to slowly move in a more positive direction.

"I think [Yahoo] has to get comfortable with being a slow-growth company," said Gottheil. "It needs to communicate to the world and to the market that it's a long-term growth concern. It's not likely to show explosive growth going forward.

"Companies can't grow like high-tech start-ups forever," Gottheil added. "Most healthy companies mature and go into a phase of slower growth and reasonable profitability. It's harder to do that in the tech world, where every year some new company passes you in some metric, but if you take care of your customers, you can go on for a very long time."

Analysts also noted that this week's deal is the latest sign that Twitter has reached a new level of relevance.

For a long time the microblogging site was thought of as a silly service that enabled people to yammer on about their favorite sandwich or the great parking spot they snagged in front of their favorite restaurant. But last year, the company turned a corner when Twitterers began using the site to get information out about important events, like turmoil in Iran and rescue efforts after the devastating earthquake in Haiti.

"For Twitter, this [week's deal] continues to cement its place in the social media world," Ray said. "Twitter's traffic continues to grow, but there are some nagging reports that some portion of new users post a couple of times and then drift away. These search engine deals help to raise Twitter's profile and drive traffic to Twitter. And Yahoo's approach will help to make Twitter a vital part of Yahoo users' communication and sharing tools."

Threat to Web Freedom Seen in Italy's Google Case

NY Times

ROME — Three Google executives were convicted of violating Italian privacy laws on Wednesday, the first case to hold the company’s executives responsible for the content posted on its system.

The case, though subject to appeal, could have sweeping implications worldwide for Internet freedom: It suggests that Google was not simply a tool for its users, as it contends, but effectively no different from any other media company, like newspapers or television, that provides content and could be regulated.

The ruling further complicates the business environment for Google in Europe, where it faces a wave of antitrust complaints. And it comes shortly after Google threatened to withdraw from China, citing sophisticated attacks by hackers there and Chinese demands that it restrict information available to local users.

Google’s enormous search and advertising business depends heavily on its reach into every corner of the global Internet and on providing users access to as much digital content as possible, regardless of its origins or ownership.

The Italian move to hold the company or its executives responsible for text, photographs or videos made available by third parties through Google and its online services, like YouTube, poses a significant challenge to the company’s business model, along with those of other Internet companies.

In Italy, where Prime Minister Silvio Berlusconi owns most private media and indirectly controls public media, there is a strong push to regulate the Internet more assertively than it is controlled elsewhere in Europe. Several measures are pending in Parliament here that seek to impose various controls on the Internet. Critics of Mr. Berlusconi say the measures go beyond routine copyright questions and are a way to stave off competition from the Web to public television stations and his own private channels — and to keep a tighter grip on public debate.

“It’s a deliberate effort to control the means of communication,” said Juan Carlos de Martin, the founder of the Nexa Center at Turin’s Polytechnic University, which studies Internet use in Italy.

Italy has one of the lowest rates of Internet use and e-commerce in Europe, and experts warned that the ruling on Wednesday could erode the nation’s position further and limit information to young people, who watch television less than their parents.

In Milan, Judge Oscar Magi sentenced the Google executives in absentia to six-month suspended sentences for violating the privacy of an autistic boy. He said Google did not act fast enough to remove from the site a widely viewed video posted in 2006 showing a group of teenage boys harassing the boy.

But Judge Magi cleared the Google executives of defamation charges. The three were Peter Fleischer, Google’s chief privacy counsel, David Drummond, senior vice president and chief legal officer, and George Reyes, a former chief financial officer. A fourth defendant, Arvind Desikan, charged only with defamation, was acquitted.

Internet activists, as well as the American ambassador to Italy, cried foul about the ruling, which some likened to punishing the mailman for delivering a nasty letter.

A spokesman for Google, Bill Echikson, called the ruling “astonishing” and said the company would appeal. In its blog, Google added that the ruling “attacks the very principles of freedom on which the Internet is built.”

Prosecutors said Google waited to remove the video until after complaints to the police by Vivi Down, an Italian group representing people with Down syndrome, whose name was mentioned by the boys in the video.

Google said it removed the video within two hours of receiving a formal complaint from the Italian police, two months after the video was first posted.

The boys, all minors, were not charged by prosecutors, but were sentenced by a different judge to community service. Prosecutors named the Google executives because Italian law holds corporate executives responsible for a company’s actions.

Google maintains that the ruling contradicted a European Union directive on electronic commerce that gives service providers safe harbor from liability for the content they host.

But prosecutors argued that because Google handles user data — and uses content to generate advertising revenue — it is a content provider, not a service provider, and therefore broke Italian privacy law. The law prohibits the use of someone’s personal data with the intent of harming him or of making a profit.

“To say this is about censorship has a big media effect, but is false,” said Alfredo Robledo, one of the prosecutors. “This is about finding a balance between free enterprise and the protection of human dignity.”

Still, the upshot of the ruling, if it prevails on appeal, is that Google will be expected in Italy to monitor the content it hosts. Mr. Echikson, the Google spokesman, said that would be impossible considering that 20 hours of video are uploaded to its site every hour.

The American ambassador to Italy, David Thorne, said he was “disappointed” by the ruling.

“We disagree that Internet service providers are responsible prior to posting for the content uploaded by users,” he said in a statement, adding that Secretary of State Hillary Rodham Clinton had said that “free Internet is an integral human right that must be protected in free societies.”

Mr. Robledo said that a company like Google could easily find ways to monitor its content, and that it should not profit from advertising revenue generated from content that violated privacy laws. He said if Google had found a way to create filters in China, it could do the same in Italy, not to monitor political content “but to protect human dignity.”

Google disagreed.

“If company employees like me can be held criminally liable for any video on a hosting platform, when they had absolutely nothing to do with the video in question, then our liability is unlimited,” said one of the three executives, Mr. Fleischer.

The Google ruling comes amid other proposed legislation that would seek to bureaucratize the Internet in Italy, including the highly contested Italian version of a European directive that would compel online broadcasters to seek the same licensing agreements as broadcast television. Google lobbied for changes to the proposal.

Paolo Romani, a deputy communications minister who sponsored the measure, said the issue was copyright protection. “It has nothing to do with the fact that our prime minister also owns television stations,” Mr. Romani said. “It’s in Berlusconi’s interest not to be accused of conflict of interest.”

Another proposal pending in Italy, tucked into a bill on wiretapping, would require blogs to publish corrections within 48 hours, as newspapers are required to do, while a third would make sites responsible for anonymous comments posted on them.

Paolo Gentiloni, a leading opposition member and a former communications minister, said Internet regulation was inevitably political. Today in Italy, “political power is in the hands of people who do TV, not the Internet.”

“The slower broadband is, the better it is for a broadcasting-oriented government,” he added.

Others warned that Italy’s red tape — including the Google ruling — could stifle free expression. Mr. de Martin, of the Nexa Center, said that universities and companies might not want to run the risk of opening Web forums if they would be criminally liable for their contents.

“If you bureaucratize it even a little, you eliminate thousands or millions of people who don’t feel like making the effort,” he said.

People's Republic of Hacking

The Wall Street Journal

'Panda' Exploit Offers Rare Inside Look at China's Cybercrime Networks

WUHAN, China—Some of today's biggest cybersecurity worries trace their roots to this central Chinese city, where a hacker with a junior high school education slapped cartoon pandas onto millions of computers to hide a destructive spy program.

The Panda Burns Incense computer worm, created by 27-year-old Li Jun, wreaked havoc for months in China in 2006 and 2007, eventually landing Mr. Li in jail. Jumping one computer to another by tricking users into opening what appeared to be a friendly email message, the Panda funneled passwords, financial information and online cash balances from game Web sites to Mr. Li's cohorts—leaving a panda as its calling card.

When Google Inc. last month alleged that it and more than 20 other companies were breached in a cyberattack it traced to China, the attack, dubbed Aurora, appeared orders of magnitude more complex than the Panda attack. Unlike the Panda attack, which left a calling card and spread quickly and randomly, the perpetrators of Aurora targeted specific employees within the companies they attacked and went to great lengths to cover their tracks.

There is no evidence thus far that the Google hack has any connection to the Panda's pandemonium. What is clear is that Mr. Li learned his craft and launched his attack within a hacker network in China that remains an active and growing threat to global computer users.

The identity, motivation and methods of Chinese hackers are rarely traceable. But based on interviews with security experts, forensic reports from independent tech firms, and the hackers themselves, the Panda case offers a rare window into how the underground world of Chinese hacking operates.

Mr. Li's Panda attack became known as "the first case of organized cybercrime in China, using a computer virus," according to U.S. technology security firm Symantec Corp. Once a computer was infected, the desktop icon of every executable file, such as Microsoft Corp.'s Word, would change into a picture of a panda. Clicking the panda would prompt the computer to immediately download software from the Internet that in turn allowed Mr. Li's computers to siphon off financial information stored deep inside it.

Cyber experts say hacker forums are very likely fertile recruiting grounds for the Chinese government, which is increasingly anxious about its own cybersecurity. In fact, one person formerly involved in spreading the Panda virus says he was later hired to work with Chinese police to break into accounts of Internet users. That couldn't be independently verified.

China rejects as nonsense that it is a hacker haven. "The government has never supported or been involved in cyber attacks, and it will never do so," Peng Bo, an official with the State Council Information Office's Internet Bureau, told state media in mid-February. "In fact, China is the country worst hit by worldwide hackers."

Investigators probing the Google matter still don't know where it began but have been examining whether computers at China's Shanghai Jiaotong University and Lanxiang Vocational School in Shandong Province were involved in the attacks, according to a person briefed on the matter. The New York Times reported Thursday that the attacks have been traced to computers at the two schools.

Mr. Li was released from prison in December after serving three years of a four-year term for destruction of property related to hacking. He declined a formal interview, but in a series of brief phone calls, online chats and email messages, he said he is looking for a "fresh start," perhaps as a cybersecurity specialist, a so-called "white hat." After his release from jail, Mr. Li spent a few days at his parent's red tiled three-floor house outside Wuhan. Instead, he has crisscrossed the country with his Acer laptop to visit others involved in the Panda attack. Mr. Li says he's interested in working with former co-conspirators on legitimate businesses.

Mr. Li's hacking career began in May 1999, a month before his 17th birthday, when U.S. warplanes bombed China's embassy in Belgrade. Angered by the strike, Mr. Li, who was hanging out at cybercafes in Wuhan, stopped playing computer games to become a hacker.

Mr. Li took lessons from a childhood acquaintance named Lei Lei. He learned how to control thousands of computers as zombie-slaves, or "chickens" in Chinese slang, to attack Websites, Mr. Lei said in an interview. While students in Beijing pelted the U.S. Embassy with rocks, the two skinny teenagers, from the second floor of a dimly lit Wuhan cybercafe called the "Network Club," waged their own "U.S. hacker war," disrupting 20 or 30 U.S. Websites, according to Mr. Lei. "We were too young at the time, doing wild things," Mr. Li said by email.

Over the next few years, the two hacked as teammates, stealing money from Internet users, Mr. Lei recalls. They downloaded simple attack programs found on the Internet to break into gaming accounts to steal and then sell virtual-money credits used by players. To advance in their games, players buy special weapons and other items, which are tradeable for cash.

Mr. Lei, 27, spent a year in the same jail as Mr. Li in Hubei province on similar charges for the Panda attack and was released in 2008. Today he works for his father's manufacturing firm in Wuhan and plans to open an Internet security business. A fan of American hip-hop music, he still flouts authority, steering his luxury Toyota the wrong way down Wuhan streets during an interview to avoid traffic.

The two hackers say they sharpened their skills as part of an online hacker alliance that took its name from a Qing Dynasty insurgency group, the Small Swords Society. Mr. Li adopted the online moniker WHboy, for Wuhan.

In general, Chinese hackers don't fit the Hollywood stereotype of geeky loner-geniuses in American basements or steely smooth Russian mobsters who design and execute hits, reaping all the benefits, cybersecurity experts say. On the contrary, China's hacker community is a widely dispersed, fragmented chain of digital craftsmen. In Chinese, hackers are known as "heike," or black guests.

"As for Chinese hackers, their overall technological skill isn't as good as American or Russian hackers," Mr. Li said in an email, answering questions from the Wall Street Journal. "However, China has the biggest population of hackers in the world." Noting his own communication with foreign hackers, he added, "I often downloaded hacker software from their sites to compare them with programs I wrote or other Chinese hackers wrote."

In China's hacking community, each person does a specific job and, rather than working for a big score, gets paid piecemeal by selling his work, cybersecurity experts say. The programmer of malicious programs usually assembles his program, as Mr. Li did, with lines of computer code he bought elsewhere. The operation works like an assembly line: The programmer then makes customers of others who pay to undertake the broader attack, spreading the malicious software, triggering it and sharing the payoff.

"The chain business is uniquely Chinese," says a Chinese security expert for a major U.S. technology company in Shanghai. Hacker conspiracies in China are structured like multi-level sales networks and even pyramid schemes, he said, not tight-knit criminal gangs that write "technically clean" code designed from the ground up.

Like most Chinese hackers, Mr. Li says he was nurtured inside the informal but active network of online chat rooms where technology break-ins are plotted. According to hackers and Internet security people, such forums are little more than criminal training schools and hardware stores, a cyber underworld where the locks on technological secrets that power online games, bank Websites and Apple Inc.'s iPhone undergo brutal stress tests from the world's largest Internet population.

To sidestep laws against selling malicious software, programmers euphemistically advertise their hacks as "training" and "tutoring," hackers say. Would-be distributors tout themselves as "mail senders," while "script kiddies," keen to build an underworld reputation, will buy hacker tools and pull the trigger.

Anyone along the chain can tweak a virus, for instance, so it attacks another target or trolls for different data. The bounty, benignly called "envelopes," is for sale too: source codes to mimic existing Websites sell priced at 50 yuan, about $7, and data from their users go for 500 yuan. Forum owners and participants mask their identities. The chief barrier to participation is the Chinese language.

Hacker "crowd sourcing"—when large numbers of people contribute to writing code and executing it—reduces the risks individuals face and leaves the network intact if someone does get caught or a forum is shut, Internet security experts say.

By October 2006, looking to filch from several types of online accounts at once, Mr. Li turned to these forums, hoping to steal enough money to buy a Land Rover, he recalled in an email sent to the Wall Street Journal.

Using a Dell computer in a rented apartment in central Wuhan, Mr. Li designed his panda worm, now formally known as W32.Fujacks, to deliver a package of software to Internet users that would steal virtual-money credits and other items from 10 different sources like online game sites. The software exploited poorly protected firewalls to infect virtually any computer connected to the Internet.

Mr. Li fished these hacker forums for usable lines of code, settling on script for a worm called Nimaya. For feedback, in the hacker equivalent of a professional peer review, he dropped samples of his own work into bulletin boards like delphibbs.com, according to Mr. Lei. Hacking "can't have made such fast progress and be here today without innovation, sharing and exchanging of technologies," Mr. Li said by email.

Weeks later, Mr. Li branded his tens of thousands of lines of code with an icon stolen from a chatting website called QQ: a black-and-white panda gripping three incense sticks. He offered the tool that siphoned money out of sites for sale, initially tapping 10 distributors who he charged about $120 each.

With "astonishing frequency," according to Symantec, the panda replicated itself by the millions. For some recipients, it was a reminder of a bug dubbed "ILOVEYOU" that had spread from the Philippines six years earlier. But the panda added a malicious feature: hackers could deploy its "backdoor" to grab virtual money from popular online games, including those run by Tencent Inc. A spokeswoman for Tencent said many companies were affected and declined to comment on the Panda case.

Mr. Lei recalls the two spent every waking moment trying to resell their virtual trove. They fenced it at 10% discounts to face value to online buyers, "like on Ebay," Mr. Lei said. How much the scam brought in isn't known, but Mr. Lei says they could earn $1,200 some days. They partied and Mr. Li bought a $2,000 computer but otherwise Mr. Lei says they didn't spend their winnings much.

Soon Chinese Internet users, including government agencies, were decrying the "poisonous panda." Modified or copycat versions of the panda started doing other kinds of damage: turning screens blue, slowing computer speeds, crashing systems and erasing programs.

By early 2007, the two realized the Panda was "out of control" and set plans to flee to western China. By then, police had tracked the Panda to the $72-per-month apartment in Wuhan rented by Messrs. Li and Lei. Only Mr. Li was home when they swooped in on Feb. 3.

Mr. Li appeared in court handcuffed with a newly shaved head and was convicted of destroying property and stealing $18,000.

Mr. Lei was caught later. Police arrested others in Zhejiang, Yunnan and Shandong provinces for their involvement in the Panda attack, some of whom were jailed as well. Many others were never identified, including people who spurred the Panda's spread and profited from it.

As Mr. Li began his four-year sentence, state media pictured him behind bars in a yellow jumper using a prison computer to exterminate his panda virus. (It didn't work. Last November, McAfee Inc., the Internet security firm, warned fresh strains of the panda bug were spreading.)

In December, Mr. Li was released early for good behavior. His first call was to Mr. Lei.

To his fast-expanding 17,000 following on a Twitter-like service, Mr. Li issued a cryptic message about what he planned for the future: "Bread will come. Milk will come. Everything can be restarted all over again."

Hack Attacks and Technical Snafus at Facebook and Twitter

NEW YORK (AP) - Facebook users have been complaining about problems at the social media site.

Users in the U.S. and other countries reported problems beginning Saturday morning. Some could not log in, and the site was unusually slow and glitchy for others. Users in London, Bangkok and Mexico City reported problems. Many used Twitter to complain.

Facebook spokesman Matt Hicks said it was a "small percentage of users" who had problems accessing Facebook, their friends' profiles or specific site features because of an isolated server problem.

At 6 p.m. Saturday, Facebook said it had restored access to the users who were having access problems.

Facebook, which has more than 100 million users, has occasionally experienced such hiccups. Twitter has had bigger problems. Last August, hackers shut down the short messaging service for several hours. Facebook also experienced problems, though it was never shut down completely.

College Kids in China Responsible For First Successful Google Hack

Hackers attacked Google from China schools

 

SAN FRANCISCO (AP) - The Internet attacks that may end up driving Google Inc. out of China originated from two prominent schools in the country, according to a story published late Thursday.

The New York Times reported security investigators have traced the hacking to computers at Shanghai Jiaotong University and Lanxiang Vocational School in China. The newspaper attributed the information to unnamed people involved in the investigation.

Google didn't immediately respond to requests for comment.

The company revealed on Jan. 12 that digital thieves had stolen some of its computer code and tried to break into the accounts of human rights activists opposed to China's policies. The sophisticated theft also targeted the computers of more than 30 other companies, according to security experts. A security weakness in Microsoft Corp.'s Internet Explorer Web browser is believed to have created an opening for the hackers.

The digital assault was serious enough to prompt Google to confront China's government about censorship rules that weed out politically and culturally sensitive topics from search results in the country. Google says it's prepared to shut down its China-based search engine and possibly shut down all of its offices in the country unless the ruling party loosens its restrictions on free speech.

Google and the government are still discussing a possible compromise.

The threat to leave China triggered speculation that Google suspected the country's government might have been involved in the computer attacks. Google has only said it believes the attack originated from within China.

China's government has denied any involvement while continuing to insist publicly that Google must obey its restrictions against showing links deemed to be subversive or pornographic.

The National Security Agency and other specialists in digital forensics have been trying to identify the source of the attacks against Google and the other companies for weeks. The inquiry led to computers at the two schools, with some evidence suggesting the attacks may have started 10 months ago, the Times reported.

Jiaotong University boasts one of China's top computer science programs, according to the Times' story. Lanxiang is a large vocational school that trains some computer scientists for the Chinese military, the Times said.

Spokesmen for the two schools told the Times that they hadn't heard U.S. investigators had implicated them in the attacks.

NYC Judge Expresses Doubts About Google Deal

Google digital library faces outcry at NYC hearing

NEW YORK (AP) - A judge Thursday questioned whether Google and lawyers for authors and publishers went too far when they struck a deal that would let the gigantic search engine make money presiding over the world's largest digital library.

U.S. District Judge Denny Chin put lawyers who reached the $125 million settlement on the defensive as he presided over a fairness hearing in a packed Manhattan courtroom where opponents of the agreement spent several hours urging him to reject it or demand changes. He did not immediately rule.

When the lawyers who completed revisions on the deal in the fall took their turn to speak, Chin questioned why the settlement gave Google publishing rights well into the future rather than merely rectifying any harm that led authors and publishers to sue it five years ago.

"Usually it's a release of claims based on what's happened in the past. Usually you don't have a release of claims based on future conduct. Why is this case different?" Chin asked Michael J. Boni, a lawyer for authors.

Boni agreed that the case was unusual but insisted the deal was fair despite objections by Google rivals, consumer watchdogs, academic experts, literary agents and even foreign governments.

The judge said it seemed akin to a settlement in a discrimination action containing wording that says: "I'm releasing you now from discriminating against me in the future."

He also seemed to take the side of some of Google's stiffest critics, including the U.S. Department of Justice, when he noted that many of those protesting the deal would disappear if the company was required to get agreements from authors before letting their works be used.

As the deal stands, Google would be able to use so-called "orphan works" - out-of-print books whose writers' could not be located - and the works of other authors who declined to opt-out of the agreement after learning about it.

"I would surmise that Google wants the orphan books and that's what this is about," Chin said.

Boni said attempts by the litigants to notify authors had already caused 620,000 out-of-print books that some would call orphan books to be claimed by 40,000 authors. So far, Google has scanned about 10 million books.

"When there is money waiting for them, they come forward at a very high rate," he said.

Boni's remarks came after a stream of people opposing the deal each spoke for about 5 minutes, leading Boni to begin by saying: "I feel a little bit like Rocky getting beaten around the head and face for 15 rounds."

Minutes earlier, U.S. Deputy Assistant Attorney General William F. Cavanaugh took his swings, saying the Justice Department was continuing an investigation and believed the agreement might violate antitrust laws.

He said Google had used the settlement to give it rights it never negotiated for, "essentially rewriting people's contracts."

"It produces benefits to Google that Google could not achieve in the marketplace because of the existence of orphan works," Cavanaugh said.

Still, Cavanaugh said the Justice Department "recognizes and applauds the objectives of mass digitization. Our concern is that this is not the appropriate vehicle to achieve those objectives."

Attorney Daralyn J. Durie, speaking for Google Inc., which is based in Mountain View, Calif., said provisions of the deal requiring authors to opt-out if they don't want their books scanned rather than requiring Google to first get each rightholder's approval was not an issue the company could be flexible on.

"There would be no settlement. There is no other way to create a market for these out-of-print works so they can become available and so the rightholders can be located," she said.

"Microsoft abandoned their scanning project. They couldn't figure out a way to make it commercially viable," she said.

Chin at one point cited critics who say the deal gives Google too many rights and he added that it did seem to go beyond where prior law had in the past allowed cases to go.

Before the lawyers took their turn, Chin heard from about two dozen speakers, the majority asking that the settlement be changed or rejected.

"It's not going to be a great library, it's going to be a great store," said Sarah Canzoneri, a member of the Children's Book Guild and plaintiff in a lawsuit by authors and publishers.

Marc Mauer, president of the National Federation of the Blind, said the audio capabilities of Google's system "will give us access to 10 million books."

Andrew DeVore, a lawyer for folk singer Arlo Guthrie and "Pay it Forward" writer Catherine Ryan Hyde, said the library would exploit his clients with "woefully inadequate compensation" for "unknown and undisclosed uses."

The hearing put technology giants at odds: A lawyer for Sony Corp., which makes electronic book readers, said the company supports Google's effort because it would promote competition. But an attorney for Microsoft Corp. complained that it would give Google an unfair advantage.

The proposed settlement "was structured to solidify Google's dominance," said Tom Rubin, the Microsoft lawyer.

Other opponents said they were worried about Google's unchecked ability to track users' reading habits and collect data on them.

The deal "raises very serious privacy concerns," said John Morris, an attorney for the Center for Democracy & Technology.

France and Germany, which oppose the settlement, noted they support a European book-scanning project, Europeana, because it is in compliance with their laws and requires permission from copyright holders before books are scanned.

Irene Pakuscher, speaking for the government of Germany, said Germany "strenuously supports the creation of digital libraries" but said the settlement should be limited to U.S. authors and publishers.

Cynthia Arato, a lawyer for the New Zealand Society of Authors, said opposition to the settlement was so strong in European countries that its approval would place severe diplomatic stress on the United States and lead to calls for trade sanctions.

She said its approval would be "virtually certain to become the most controversial class action settlement ever to emanate from the United States."

David Nimmer, a lawyer for Amazon.com Inc., told Chin the agreement allowed "full scale commercial exploitation with essentially no restraint whatsoever."

He added: "It turns copyright law on its head."

Durie said Google disputed the notion.

"This does not turn copyright law on its head," she said. "We firmly believe that it constitutes fair use and is permissible under copyright law."

She said there was no "present danger that Google will monopolize the market for e-books" because the company currently had no market. She said competitors were trying to keep the company out of the market.

Durie said fewer than 10 million books of 174 million books in the world would be affected by the settlement, about 5 million of which were out-of-print works.

She said the settlement provides a mechanism to access out-of-print books.

"One way to get something is certainly better than no way to get them at all. One distribution channel is a lot better than none," she said.

Corporations, Agencies Infiltrated by Botnet

AP

SAN FRANCISCO (AP) - Security experts have found a network of 74,000 virus-infected computers that stole information from inside corporations and government agencies. The unusual thing about the incident is not that it happened but that it was discovered, and it is a reminder of the dangers of having computers with sensitive data connected to the open Internet.

More than 2,400 organizations, including financial institutions and energy companies and federal agencies, were infiltrated by the "botnet," according to the NetWitness Corp. security firm, which discovered it.

NetWitness didn't name the companies or agencies whose computers were compromised. The Wall Street Journal said the affected companies included Merck & Co., Cardinal Health Inc., Paramount Pictures and Juniper Networks Inc. Merck and Cardinal Health said in statements Thursday that one computer in each company was among those in the botnet but no sensitive information was taken. The other two companies didn't return messages from The Associated Press seeking comment Thursday.

The victims don't appear to have been specifically targeted, unlike the recent computer attacks on Google Inc. that prompted the Internet search leader to threaten to pull its business out of China. That's an important distinction, because it shows how online secrets can fall into the wrong hands even when criminals aren't necessarily looking for them.

"This kind of stuff is out there and it's pervasive," said Amit Yoran, CEO of NetWitness and former cybersecurity chief at the U.S. Department of Homeland Security. Parts of the botnet discovered by his firm likely are still active. He said the network appears to be run from computers in Eastern Europe and China, but it's not certain the perpetrators are there.

Botnets are networks of poisoned PCs that are remotely controlled by hackers and behave like their criminal robots. The PCs are often infected when their owners visit bad Web sites or open malicious e-mail attachments.

Botnets are a major tool for cybercrime. They help criminals amass troves of stolen data that they can sell on the black market or use for their own schemes, such as yanking money from victims' bank accounts.

The biggest on record is the one created by the Conficker worm. That infected anywhere from 3 million to 12 million PCs running Microsoft Corp.'s Windows operating system and is still active.

The botnet NetWitness discovered used malicious software called "ZeuS" that steals passwords and other online credentials. It's primarily focused on poaching Internet banking credentials and is well known in the security community.

The fact that so many companies and government agencies were hit generally appears to have been incidental. Yoran said the attackers were targeting specific information rather than specific organizations.

Still, they were very successful, snatching more than 68,000 credentials over four weeks. Most of those credentials were login details for Facebook and Yahoo and other personal e-mail services. On the face of it those aren't the most sensitive pieces of information, but they can hold the keys to unlocking other types of online accounts and private data.

Security experts who weren't part of the NetWitness report said the findings illustrate the growing risk from the ZeuS software, whose authors are constantly updating it to evade detection by antivirus software and other security measures.

Don Jackson, researcher with the Counter Threat Unit of SecureWorks, said millions of computers are infected with ZeuS. Perhaps half a million of those are being milked by professional operators running the latest versions of the software.

He said the botnet NetWitness found was a "major threat" but added that the criminals behind it appeared to be using an older version of the software that is easier to detect.

"There are dozens of these types of operations ongoing every day that just aren't named," he said.

A bigger concern, Jackson said, is a new version of ZeuS that has appeared in the last few months and is more powerful and even harder to detect.

One of its features is that it gives a hacker the ability to conduct financial transactions directly from a compromised computer. Otherwise the criminal would have to steal the login credentials and use them on another computer. Some banks have put up extra security measures to detect and stop that.